Personal investors guide to capital gains tax 2001

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Appendixes

Appendix 1: Consumer price Index (CPI) Figures

All groups - weighted average of eight capital cities
	Quarter ending
Year	31 March	30 June	30 Sep	31 Dec
1985	-	-	71.3	72.7
1986	74.4	75.6	77.6	79.8
1987	81.4	82.6	84.0	85.5
1988	87.0	88.5	90.2	92.0
1989	92.9	95.2	97.4	99.2
1990	100.9	102.5	103.3	106.0
1991	105.8	106.0	106.6	107.6
1992	107.6	107.3	107.4	107.9
1993	108.9	109.3	109.8	110.0
1994	110.4	111.2	111.9	112.8
1995	114.7	116.2	117.6	118.5
1996	119.0	119.8	120.1	120.3
1997	120.5	120.2	119.7	120.0
1998	120.3	121.0	121.3	121.9
1999	121.8	122.3	123.4	N/A

Appendix 2: Recent share transactions

Company	Details of transaction
Amcor Ltd	Non assessable payment On 14 April 2000 Amcor shareholders received a return of capital of $1.22 for each Amcor share they held. It was applied to acquire PaperlinX shares. The return of capital is a non-assessable payment, so shareholders who received PaperlinX shares should reduce the cost base and reduced cost base of their Amcor shares by $1.22 per share.
AMP Ltd	Demutualisation Acquisition cost for AMP Ltd shares is $10.43 per share and acquisition date is 20 November 1997. Note: Distribution from AMP Foundation Trust In addition to their final dividend in April 2001, AMP shareholders received a distribution from the AMP Foundation Trust. The trust used the discount method to calculate its capital gain and this will be shown on shareholders' distribution notices as the full capital gain (the grossed up amount). Shareholders do not need to gross up the capital gain amount themselves.
BHP Ltd	Non-assessable payment On 31 October 2000 BHP shareholders received a return of capital of 66 cents for each BHP share held. It was applied to acquire OneSteel shares. The return of capital is a non-assessable payment, so shareholders who received OneSteel shares should reduce the cost base and reduced cost base of their BHP shares by $0.66 per share.
Boral Ltd	Demerger Origin Energy Ltd (formerly called Boral Ltd) shareholders received one new Boral Ltd share for every two old Boral Ltd shares held. Acquisition cost of the new Boral Ltd shares is $3.16 per share and the acquisition date is 1 March 2000.
Coca-Cola Amatil Ltd	Non assessable payment On 23 June 1998 Coca-Cola Amatil shareholders received a return of capital of $3.86 for each Coca-Cola Amatil share they held. It was applied to acquire Coca-Cola Beverages shares. The return of capital is a non-assessable payment, so shareholders who received Coca-Cola Beverages shares should reduce the cost base and reduced cost base of their Coca-Cola Amatil shares by $3.86 per share.
Coca-Cola Beverages Ltd	Demerger Coca-Cola Amatil Ltd shareholders entitled to one Coca-Cola Beverages share for each Coca-Cola Amatil share held. Acquisition cost of Coca-Cola Beverages shares is $3.86 per share and the acquisition date is 23 June 1998.
Commonwealth Bank of Australia Ltd	Public share offer For the first instalment: Acquisition date and indexation available from 13 July 1996. For the final instalment: Indexation applies from the date of receipt by the trust of the payment due on 14 November 1997 or of the discounted sum paid earlier. Share buy-back The buy-back price of $27.84 included $10.00 capital proceeds and a $17.84 fully franked dividend. The disposal date was 2 April 2001.
Lend Lease Ltd	Share buy-back The buy-back price of $19.88 included $7 capital proceeds and a $12.88 fully franked dividend. The disposal date was 2 October 2000.
NRMA Insurance Group Ltd (NIGL)	Demutualisation Acquisition cost of NIGL shares allocated to shareholders is $1.78 per share. Acquisition date was 19 June 2000. For additional shares purchased through the facility, acquisition cost is $2.75 and acquisition date was 6 August 2000. Share buy-back If you sold shares that you obtained under the demutualisation, there will be no capital gains tax consequences. This is because the buy back price was paid in June 2001 and consisted of two components: capital proceeds of $1.78 and a fully franked dividend equal to the balance of the buy back price in excess of $1.78. If you sold any of the additional shares you purchased through the facility (up to 181 shares), you will make a capital loss. For example:.
	Capital proceeds	$1.78
	Reduced cost base	$2.75
	Capital loss (per share)	$0.97
	If you acquired your shares by purchasing them on the stock exchange, whether you made a capital gain or capital loss will depend on the cost base of your shares.
OneSteel Ltd	Demerger BHP shareholders received one OneSteel Ltd share for every four BHP shares held. Acquisition cost of OneSteel shares is $2.64 per share and acquisition date is 31 October 2000.
Origin Energy Ltd	Non-assessable payment On 1 March 2000 shareholders in Origin Energy Ltd (formerly called Boral Ltd) received a return of capital of $3.16 for each Origin Energy share (or $1.58 for each old Boral Ltd share) held. It was applied to acquire the new Boral Ltd shares. The return of capital is a non-assessable payment, so shareholders who received new Boral Ltd shares should reduce the cost base and reduced cost base of their Origin Energy shares by $3.16 per share.
PaperlinX Ltd	Demerger Amcor shareholders were entitled to one PaperlinX share for every three Amcor shares they held. For each Amcor share they held, they received a return of capital of $1.22, which was applied to acquire PaperlinX shares. Acquisition cost of PaperlinX shares is $3.66 per share and acquisition date is 14 April 2000.
Suncorp-Metway Ltd	Exchange of Series 1 Exchanging Instalment Notes (EINs) Suncorp-Metway Ltd shares received in exchange for Series 1 EINs were acquired on 1 November 1999. Their acquisition cost is $8.20 per share.
Telstra	Public Share Offer 1 For the first instalment: Acquisition of shares was (and indexation available from) 15 November 1997. For the final instalment: Indexation applies from the date of receipt by the trust of the payment due on 17 November 1998. Public Share Offer 2 For the first instalment: Date of acquisition was 22 October 1999 if the instalment receipts were purchased through the offer. No indexation applies because acquisition was after 21 September 1999. For the final instalment: No indexation as above.

Explanation of terms

Assessable income

This is all the income you have received that should be included in your income tax return. Generally, assessable income does not include non-assessable payments from a unit trust, including a managed fund.

Capital gain

You may make a capital gain (or profit) as a result of a CGT event, for example when you sell an asset for more than you paid for it. You can also make a capital gain if a managed fund or other unit trust distributes a capital gain to you.

Capital gains tax

Capital gains tax (CGT) refers to the tax you pay on any capital gain you make and include in your annual income tax return. For example, when you buy (or otherwise acquire) or sell (or otherwise dispose of) an asset as part of a CGT event, you are subject to capital gains tax.

Capital loss

Generally, you may make a capital loss as a result of a CGT event if you sold an asset for less than you paid for it. Your capital loss is the difference between your reduced cost base and your capital proceeds.

Capital proceeds

Capital proceeds is the term used to describe the amount of money or the value of any property you receive or are entitled to receive as a result of a CGT event. For shares or units, capital proceeds may be:

• the amount you receive from the purchaser
• the amount you receive from a liquidator
• the amount you receive on a merger/takeover, or
• the market value if you give them away.

CGT asset

The CGT assets covered by this guide are shares and units.

However, CGT assets also include collectables (such as jewellery), assets for personal use (such as furniture or a boat), and other assets (such as an investment property). If you have made a capital gain from the sale of one or more of these assets, you may need the Guide to capital gains tax 2001 .

CGT-concession amounts

These amounts are the CGT discount component of any actual distribution from a managed fund.

CGT event

A CGT event happens when a transaction takes place such as the sale or purchase of a CGT asset. The result is usually a capital gain or capital loss.

Cost base

The cost base of an asset is generally what it cost you. It is made up of five elements:

• money you paid for the asset
• incidental costs of acquiring or selling it (eg brokers fees and stamp duty)
• non-capital costs associated with owning it (generally this will not apply to shares or units because you will usually have claimed these costs as tax deductions)
• costs associated with increasing its value (eg if you paid a call on shares), and
• what it has cost you to preserve or defend your title or rights to it.

The cost base for a share or unit may need to be reduced by the amount of any non assessable payment you receive from the company or fund. Generally, interest you have paid on money borrowed to buy shares or units will not form part of your cost base.

Demutualisation

A company demutualises when it changes its membership interests to shares. If you received shares as part of a demutualisation of an insurance company (eg the NRMA), you may be subject to capital gains tax when you sell the shares.

Usually the company will advise you of your cost base for the shares you received. The company may give you the choice of keeping the shares they have given you or of selling them and giving you the capital proceeds.

Discount method

The discount method is one of the ways to calculate your capital gain if:

• the CGT event happened after 11.45 am on 21 September 1999, and
• you acquired the asset at least 12 months before the CGT event.

If you use the discount method, you do not index the cost base, but you can reduce your capital gain by the CGT discount of 50%. However, you must first reduce your capital gains by the amount of all your available capital losses (both current year and prior years), before you discount any remaining capital gain.

If you acquired the asset before 11.45 am on 21 September 1999, you can choose either the discount method or the indexation method, whichever gives you the best result.

The examples in part B of this guide show how the discount method works.

Discounted capital gain

A discounted capital gain is a capital gain that has been reduced by the CGT discount. If the discounted capital gain has been received from a managed fund, the amount will need to be grossed up in your income tax return before you apply any capital losses and then the CGT discount.

Dividend reinvestment plans

Under these plans, shareholders can choose to have their dividend used to acquire additional shares in the company instead of receiving a cash payment. For capital gains tax purposes, you are treated as if you received a cash dividend and then used it to buy additional shares. Each share (or parcel of shares) received in this way is treated as a separate asset when the shares are issued to you.

Employee share schemes

If you acquired shares at a discount under an employee share scheme, you would have included the amount of the discount in your assessable income in your tax return.

For capital gains tax purposes, the cost base of the shares is the amount paid to the company when you acquired them, plus the amount of the discount included in your assessable income under the ordinary tax provisions.

Gross up

Grossing up applies to unit holders who are entitled to a share of the fund's income that includes a capital gain reduced by the CGT discount. In this case, you 'gross up' your capital gain by multiplying by two your share of any discounted capital gain you have received from the fund.

Income year

The income year is the financial year relating to your current income tax return.

Indexation factor

The factor is worked out based on the Consumer Price Index (CPI) figures in appendix 1 of this guide.

The indexation factor is the CPI figure for the September 1999 quarter (123.4), divided by the CPI figure for the quarter in which you incurred costs relating to the asset. The result is rounded to three decimal places. The indexation of the cost base of an asset is frozen as at 30 September 1999.

Indexation method

The indexation method is one of the ways to calculate your capital gain if you bought a CGT asset before 11.45 am on 21 September 1999. This method allows you to increase the cost base by applying an indexation factor (based on increases in the Consumer Price Index up to September 1999).

You cannot use the indexation method for:

• CGT assets bought after 11.45 am on 21 September 1999, or
• expenditure relating to a CGT asset acquired after that date.

Some examples in part B show how the indexation method works.

You may prefer to use the discount method for CGT events after 21 September 1999 if that method gives you the best result.

Net capital gain

The net capital gain is the difference between your total capital gains for the year and your total capital losses (including capital losses from prior years), less any CGT discount to which you are entitled.

You show the result at label A item 17.

Non-assessable payment

A non-assessable payment is a payment received from a company or fund that is not assessed as part of your income in your income tax return. This includes some distributions from unit trusts and managed funds and, less commonly, from companies.

'Other' method

To calculate your capital gain using the 'other' method, you subtract your cost base from your capital proceeds. You must use this method for any shares or units you have bought and sold within 12 months (that is, when the indexation and discount methods do not apply).

Reduced cost base

The reduced cost base is the amount you take into account when you are working out whether you have made a capital loss when a CGT event happens. The reduced cost base may need to have amounts deducted from it such as non-assessable payments. The reduced cost base does not include indexation or interest on monies borrowed.

Roll-over

Roll-over allows a capital gain to be deferred or disregarded until a later CGT event happens.

Scrip for scrip roll-over

This generally applies to CGT events that happen on or after 10 December 1999 in the case of a takeover or merger of a company or fund in which you have holdings. The company or fund would usually advise you if the roll-over conditions have been satisfied. This roll over allows you to defer your capital gains tax obligation until a later CGT event happens to your shares or units.

You may only be eligible for partial roll-over if you received shares (or units) plus cash for your original shares. In that case, if the information provided by the company or fund is not sufficient for you to calculate your capital gain, you may need to seek advice from the ATO.

Share buy-backs

If you disposed of shares back to a company under a buy-back arrangement, you may have made a capital gain or capital loss.

Some of the buy-back price may have been treated as a dividend for tax purposes. The time you make the capital gain or capital loss will depend on the conditions of the particular buy-back offer.

Takeovers and mergers

If a company in which you held shares was taken over and you received new shares in the takeover company, you may be entitled to scrip for scrip roll-over.

If the scrip-for-scrip conditions were not satisfied, your capital proceeds for your original shares will be the total of any cash and the market value of the new shares you received.

Tax-deferred amounts

These amounts include indexation allowed to a managed fund on its capital gains and accounting differences in income.

Tax-exempted amounts

These amounts are generally made up of exempt income of the managed fund, amounts on which the fund has already paid tax, or income you had to repay to the fund. Tax-exempted amounts do not affect your cost base or your reduced cost base.

Tax-free amounts

These amounts allow the managed fund to pay greater distributions to its unit holders. This is due to certain tax concessions funds can receive (eg deductions for the cost of buildings).

ATO references:
NO NAT 4152